As a regular contributor to The New York Times and the author of two books, Carl Richards knows the value of a good story.
Here’s one he loves. It comes courtesy of Ron Lieber’s new book, The Opposite of Spoiled. Lieber, who also writes a personal finance column for the Times, wrote in his book about Scott Parker from the San Diego area. His family didn’t discuss money much, but he wanted that to change. So Parker went to a bank and withdrew his entire monthly paycheck in $1 bills, went home and piled all of the money on the dining room table. He then gathered his family.
“I definitely had their attention,” Parker says in Lieber’s book. “And then I just started peeling away.”
Parker took away the money used for the family’s tithe, income taxes, and mortgage and insurance costs. He took more away for various bills, groceries, gas and car payments. Then he removed the money used for expenses such as trips for soccer and outings to restaurants. By the time he was done, there wasn’t much money left on the table. Parker says he was sure his children had never added up all of the places that a paycheck needs to go, and that the exercise left a strong impression on them.
Richards counts Lieber as a friend, colleague and mentor. But that’s not why he’s such a fan of Lieber’s book and the story of Scott Parker and his stacks of money.
“That story is amazing to me,” says Richards, the director of investor education for the BAM ALLIANCE and author of The Behavior Gap and the recently released The One-Page Financial Plan. “It’s so powerful, so tactile, so real. Talking about money with our children is something we can all do, if we just get over the fear of it.”
The Opposite of Spoiled offers real-life stories that touch on a range of money topics that can arise when raising children, from allowances to cell phones to part-time jobs to college tuition. As the book states, “Good parenting means talking about money with our kids much more often. When parents avoid these conversations, they lose a tremendous opportunity — not just to model important financial behaviors, but also to imprint lessons about what their family cares about most.”
Richards, in fact, believes the reluctance to talk about money is one of the biggest money mistakes people make, but that Lieber’s book offers myriad examples of the value that can come from having such discussions with children. He says reading about these conversations not only gives us permission to have them with our children but also provides us with a template to guide these very conversations.
Richards, who has four children, offers a tip for getting these conversations started — and it begins with simple silence. “There’s such a value in just pausing, building in a pause, when kids ask tough money questions. It helps you avoid the knee-jerk reaction of just saying something to avoid the subject or say, ‘We don’t talk about that.’ ” Richards, instead, has found it beneficial to say, “Tell me more.”
He says: “By asking why they are asking, I often get a whole new viewpoint on where their question is coming from. It provides an opportunity to have a conversation, for you to start listening to understand instead of listening to judge. So often, I think we are so quick to say yes or no or I agree or I disagree instead of listening to understand. To me, that’s a powerful thing.
“Who doesn’t want to have cool conversations with their kids, and money provides a really awesome framework because it’s so closely tied to values. And we all at night want to have better relationships with our kids.”
Quick Take on Fixed Income
April 2015
Q: What is prime broker?
A: A prime broker essentially allows clients to trade through an omnibus account at the various custodians. Trading through such an account allows clients to remain anonymous, not only protecting their privacy but also making the trading process more efficient and less prone to settlement errors.
Q: What are the advantages of an account having prime broker?
If trades are placed for an account that does not have prime broker, the client’ s information (including name, address and Social Security number) will need to be sent to the executing broker/dealer to open an account at the institution so the trade can be executed. Sharing this type of sensitive information with our broker/dealer partners is not ideal, so we try and avoid this by having prime broker paperwork in place. Without prime broker, we are required to share client information with the executing broker/dealers because they are required to send the client a trade confirmation. This can be confusing to clients when a trade confirmation from XYZ broker/dealer shows up in their mail and they are not aware of any relationship with that firm. With prime broker, all trade confirmations come directly from the custodian, avoiding this confusion.
Another advantage is custodians will “shadow post” fixed income trades before settlement, so an advisor will see that a trade was placed. Without prime broker paperwork, custodians will not post trades until the bonds actually settle, which can take days or weeks. This can become problematic if an advisor is not careful and can lead to duplicate trades if a previous trade is not reflected in the account. Prime broker also greatly cuts down settlement issues because less manual entry is involved, cutting down on human errors.
Lastly, without prime broker paperwork, Fidelity does not allow clients to trade with any other broker/dealer. This limits its clients strictly to Fidelity’s own inventory, therefore not allowing them to take advantage of better offerings outside of Fidelity.
Q: What are some requirements to get prime broker?
The minimum account value to get prime broker added is $100,000. If an account meets this requirement, prime broker can serve as a resource to help find the best securities for clients and allow for trades to settle in an efficient manner.
Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.
Quick Take on Fixed Income
April 2015
Q: What is the difference between the new issue and the secondary municipal bond market?
A: Essentially, there is little difference between the two markets. Their structure is identical in terms of credit quality, revenue source, price and yield. The new issue realm is the initial offering of a security, similar to an initial public offering in the equity market. However, the volatility that is sometimes associated with an equity IPO does not exist in the high-grade new issue municipal market. The new issue market is simply the means by which a municipality raises cash by issuing debt. The only material discrepancy between the two markets is that newly issued municipal bonds typically have an extended settlement date of 1-2 weeks, as opposed to T+3 (investing shorthand for trade date plus three days).
Why municipal bonds are purchased in the new issue market
The bonds used in our clients’ portfolios adhere to a strict list of buying parameters. Only high-credit-quality bonds are purchased, with yield becoming the determining factor in many cases. Municipal offerings in the new issue market often have a slightly higher yield, for two main reasons. One, municipal underwriters are taking on the risk of potentially owning some of the securities (as with an equity IPO), so those traders want to ensure the bonds will be attractively priced. Two, newly issued bonds inherently increase supply in the overall marketplace, causing the economics of supply and demand to affect municipal bond prices. All things being equal, a significant increase in municipal supply will decrease overall bond prices, leading to higher yields.
Why municipal bonds are purchased in the secondary market
The main reason to not purchase more bonds in the new issue market comes back to yield. Although municipal bonds typically do have a slightly higher yield in the new issue market, this is usually relative to a specific state. Generally, our clients can obtain a better overall yield outside of their state of residence. Some states either have a naturally higher supply of municipal bonds or a lower in-state demand for municipal bonds (particularly those with no state income tax, such as Florida, Texas or Washington). Once an appropriate credit quality is determined, a judgment is made on how to achieve the best combination of yield and credit quality, regardless of whether the bond is in the new issue or secondary market.
Bottom line
The new issue municipal market is simply another source to purchase bonds for our clients. There is essentially no difference between a muni bond purchased in the new issue market and one purchased in the secondary market, aside from an extended settlement date.
Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.